UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

For the quarterly period ended June 30, 2020

OR

For the transition period from _______________ to _______________

Commission File Number: 001-38890

 

Cortexyme, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Registrant’s telephone number, including area code: (415) 910-5717

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of August 12, 2020, the registrant had 29,487,674 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 

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Table of Contents

 

 

 

 

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Cortexyme, Inc.

Condensed Balance Sheets

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

The accompanying notes are an integral part of these condensed financial statements.

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Cortexyme, Inc.

Condensed Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except share and per share amounts)

 

 

The accompanying notes are an integral part of these condensed financial statements.

 

 

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Cortexyme, Inc.

Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity

(Unaudited)

(In thousands, except share and per share amounts)

 

 

The accompanying notes are an integral part of these condensed financial statements.

 

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Cortexyme, Inc.

Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity

(Unaudited)

(In thousands, except share and per share amounts)

 

 

The accompanying notes are an integral part of these condensed financial statements.

 

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Cortexyme, Inc.

Condensed Statements of Cash Flows

(Unaudited)

 

 

The accompanying notes are an integral part of these condensed financial statements.

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Cortexyme, Inc.

Notes to Unaudited Condensed Financial Statements

Note 1. Organization

Description of Business

Cortexyme, Inc. (the “Company”) was incorporated in the State of Delaware in June 2012 and is headquartered in South San Francisco, California. The Company is a clinical stage biopharmaceutical company focused on developing therapeutics based on data supporting a new theory of the cause of Alzheimer’s disease and other degenerative disorders. Cortexyme is targeting a specific, infectious pathogen tied to neurodegeneration and chronic inflammation in humans and animal models.

Reverse Stock Split

On April 25, 2019, the Company’s Board of Directors approved a one-for-0.367647 reverse split of the Company’s issued and outstanding common stock, redeemable convertible preferred stock, and stock options. The par value of the common stock was not adjusted as a result of the reverse stock split. All share and per share amounts in the accompanying unaudited condensed financial statements and notes to the unaudited condensed financial statements have been retroactively adjusted for all periods presented to reflect the reverse stock split.

Initial Public Offering

On May 8, 2019, the Company’s registration statement on Form S-1 (File No. 333-230853) for its initial public offering of common stock (“IPO”) was declared effective by the Securities and Exchange Commission (“SEC”). On May 13, 2019, the Company closed its IPO with the sale of 5,073,800 shares of common stock, which included 661,800 shares of common stock issued upon the exercise in full of the underwriters’ option to purchase additional shares, at a public offering price of $17.00 per share, resulting in net proceeds of $77.8 million, after deducting underwriting discounts and commissions and estimated offering expenses paid by the Company.

In addition, in connection with the closing of the IPO, all of the Company’s outstanding shares of redeemable convertible preferred stock were automatically converted into 18,161,027 shares of common stock, and there are no shares of redeemable convertible preferred stock outstanding.

Private Investment in Public Equity (“PIPE”)

In February 2020, the Company completed a private investment in public equity transaction (“PIPE Financing”). The Company entered into Stock Purchase Agreements (the “Purchase Agreements”) with certain accredited investors, including an entity affiliated with a member of the Company’s Board of Directors, pursuant to which the Company sold and issued shares of common stock for aggregate gross proceeds of $125.0 million. Costs related to the offering were $7.4 million. Pursuant to the Purchase Agreements, the Company sold 2,500,000 common shares at $50.00 per common share.  In connection with the PIPE Financing, the Company filed a registration statement on Form S-1 (File No. 333-237594), with the SEC registering for resale the shares of common stock issued in the PIPE Financing. The registration statement was declared effective by the SEC on April 13, 2020.

Liquidity and Capital Resources

The Company has incurred losses and negative cash flows from operations since inception and expects to continue to generate operating losses for the foreseeable future. As of June 30, 2020, the Company had an accumulated deficit of $104.6 million. Since inception through June 30, 2020, the Company has funded operations primarily with the net proceeds from the issuance of convertible promissory notes, from the issuance of redeemable convertible preferred stock, from the net proceeds from the IPO and from the net proceeds from the PIPE Financing. As of June 30,2020, the Company had cash, cash equivalents, and short-term investments of $144.5 million, which it believes will be sufficient to fund its planned operations for a period of at least 12 months from the date of the issuance of the accompanying unaudited financial statements. The Company also has long-term investments of $66.1 million.

Management expects to incur additional losses in the future to fund its operations and conduct product research and development and may need to raise additional capital to fully implement its business plan. The Company may raise additional capital through the issuance of equity securities, debt financings or other sources in order to further implement its business plan. However, if such financing is not available when needed and at adequate levels, the Company will need to reevaluate its operating plan and may be required to delay the development of its product candidate.

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Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the instructions of the SEC on Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In management’s opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results of operations and cash flows for the periods presented have been included.

The condensed balance sheet as of June 30, 2020, the condensed statements of operations and comprehensive loss for the three and six months ended June 30, 2020 and 2019, the condensed statements of redeemable convertible preferred stock and stockholders’ equity for the three and six months ended June 30, 2020 and 2019, the condensed statements of cash flows for the six months ended June 30, 2020 and 2019, and the financial data and other financial information disclosed in the notes to the condensed financial statements are unaudited. These financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2019 included in the Company’s Form 10-K filed with the SEC on March 16, 2020. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020, or for any other future annual or interim period.

Risks and Uncertainties

The pandemic caused by an outbreak of a new strain of coronavirus, COVID-19, has resulted, and is likely to continue to result, in significant national and global economic disruption and may adversely affect our business. The Company is actively monitoring the impact of COVID-19 and the possible effects on its financial condition, liquidity, operations, clinical trials, suppliers, industry and workforce. However, the full extent, consequences, and duration of the COVID-19 pandemic and the resulting impact on the Company cannot currently be predicted. The Company will continue to evaluate the impact that these events could have on the Company’s operations, financial position, and the results of operations and cash flows during fiscal year 2020.

 

Use of Estimates

The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and expenses, as well as related disclosure of contingent assets and liabilities. The most significant estimates used in the Company’s financial statements relate to the determination of the fair value of common stock prior to the initial public offering, stock-based awards and other issuances, accruals for research and development costs, useful lives of long-lived assets, stock-based compensation and related assumptions, the incremental borrowing rate for leases and income tax uncertainties, including a valuation allowance for deferred tax assets; and contingencies. The Company bases its estimates on historical experience and on various other market specific and other relevant assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from the Company’s estimates.

Significant Accounting Policies

There have been no significant changes to the accounting policies during the six months ended June 30, 2020, as compared to the significant accounting policies described in our Annual Report on Form 10-K.

Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash and cash equivalents. Cash equivalents, which consist of amounts invested in money market funds, are stated at fair value. There are no unrealized gains or losses on the money market funds for the periods presented.

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Fair Value Measurements

The fair value of our financial instruments reflects the amounts that we estimate we would receive in connection with the sale of an asset or pay in connection with the transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). We disclose and recognize the fair value of our assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:

Level 1 - Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date;

Level 2 - Inputs other than quoted prices that are observable for the assets or liability either directly or indirectly, including inputs in markets that are not considered to be active;

Level 3 - Inputs that are unobservable. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Our assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. 

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update, or ASU, No. 2016-02, Leases (Topic 842), to enhance the transparency and comparability of financial reporting related to leasing arrangements. The Company adopted the standard effective January 1, 2019.

The Company determines if an arrangement includes a lease at inception. Right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The right-of-use asset includes any lease payments made and excludes lease incentives. Incremental borrowing rate is used in determining the present value of future payments. The Company utilizes its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The lease terms may include options to extend or terminate the lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the non-cancelable lease term. The Company has elected not to recognize a right-of-use asset and lease liability for short-term leases. A short-term lease is a lease with an expected lease term of 12 months or less and which does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise. The Company also elected the package of practical expedients under the transition guidance that will retain the historical lease classification and initial direct costs for any leases that exist prior to adoption of the new guidance and the practical expedient to not separate lease and non-lease components. See Note 6 for further disclosure.

Finance lease right of use assets are recorded on the balance sheet in Property and equipment, net. The current portion of the operating lease liability is recorded in accrued expenses and other current liabilities.  

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to not use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies.

 

Recent Accounting Pronouncements Adopted

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.  The new guidance changes disclosure requirements related to fair value measurements as part of the disclosure framework project. The disclosure framework project aims to improve the effectiveness of disclosures in the notes to the financial statements by focusing on requirements that clearly communicate the most important information to users of the financial statements. The Company adopted this effective January 1, 2020. The adoption of this pronouncement did not have a material impact on its financial statements or disclosures.

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In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40)”: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”), which clarifies the accounting for implementation costs in cloud computing arrangements. The Company adopted the standard prospectively on January 1, 2020. The adoption of this pronouncement did not have a material impact on its financial statements.

Recent Accounting Pronouncements Not Yet Adopted

The following are new accounting pronouncements that the Company is evaluating for future impacts on its financial statements:

Financial Instruments—Credit Losses: In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which amends the principles around the recognition of credit losses by mandating entities incorporate an estimate of current expected credit losses when determining the value of certain assets. The guidance also amends reporting around allowances for credit losses on available-for-sale marketable securities. For Smaller Reporting Companies as defined by the SEC, ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is evaluating the impact of the guidance on its financial statements.

All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.

Note 3. Fair Value Measurements

The Company measures and reports its cash equivalents, restricted cash, and investments at fair value.

Money market funds are measured at fair value on a recurring basis using quoted prices and are classified as Level 1. Investments are measured at fair value based on inputs other than quoted prices that are derived from observable market data and are classified as Level 2 inputs.

Financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements by major security type as of June 30, 2020 and December 31, 2019 are presented in the following tables (in thousands):

 

 

 

 

 

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The following table summarizes the available-for-sale securities (in thousands):

 

 

 

As of June 30, 2020, the weighted average remaining contractual maturities of available-for-sale securities was approximately 11 months. There have been no significant realized losses on available-for-sale securities for the period presented. Based on the Company’s review of its available-for-sale securities, the Company has a limited number of available-for-sale securities in insignificant loss positions as of June 30, 2020, none of which have been in a loss position for more than one year. The Company believes it had no other-than-temporary impairments on these securities as of June 30, 2020, because the Company does not intend to sell these securities nor does the Company believe that it will be required to sell these securities before the recovery of their amortized cost basis.

 

The investments are classified as available-for-sale securities. At June 30, 2020 and December 31, 2019, the balance in the Company’s accumulated other comprehensive income was comprised solely of activity related to the Company’s available-for-sale securities. There were no realized gains or losses recognized on the sale or maturity of available-for-sale securities for the three or six months ended June 30, 2020 and as a result, the Company did not reclassify any amounts out of accumulated other comprehensive income for the quarter.

There were no transfers between Levels 1, 2 or 3 for the period presented.

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Note 4: Cash, cash equivalents and investments

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed balance sheets that sum to the total of the same amounts shown in the condensed statements of cash flows (in thousands):

 

 

Restricted cash as of June 30, 2019 relates to a compensating balance to secure a credit card facility. There was no restricted cash as of June 30, 2020.

The following tables categorize the fair values of cash, cash equivalents, and short-term investments measured at fair value on a recurring basis on our balance sheet (in thousands):

 

  

 

Note 5. Balance Sheet Components

Prepaid expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):

 

 

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Property and Equipment

Property and equipment, net consist of the following (in thousands):

 

 

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

 

 

Note 6. Leases

Real Estate Operating Leases

In June 2018, the Company entered into a three-year lease agreement with no renewal options with a related party, one of the investors in the Series B redeemable convertible preferred stock. The lease began on July 16, 2018 and provides 3,185 square feet of office and laboratory space in South San Francisco, California. The Company issued 114,437 shares of its Series B redeemable convertible preferred stock with a fair value of $1.1 million in exchange for the leased facility. No other payments are due under the lease. The common area maintenance and other operating costs are included in the base rent. 100% of the issued shares were initially subject to a repurchase option. Pursuant to the terms of the lease, each month beginning on the one-month anniversary of the commencement date of the lease, 1/36^th of the total shares are released from the repurchase option until all shares are released over the lease period of three years. The scheduled release of shares ceased immediately upon the IPO which was a terminating event.

The Company completed its IPO on May 13, 2019 and as a result, pursuant to the terms of the lease agreement, all previously unvested shares were fully vested and as part of the IPO process, all outstanding shares of the Company’s redeemable convertible preferred stock including the Series B redeemable convertible preferred stock issued in connection with the lease agreement were converted into shares of the Company’s common stock on a 1-for-1 basis and the operating lease liability was extinguished.

In May 2019 the Company entered into an amendment to the lease agreement to rent additional space in the same facility under the same terms as its existing facility lease except the terms of payment. Under the terms of the amendment, the Company paid a one-time fee of approximately $63,000 for the additional space and the lease agreement will terminate in July 2021. No other payments are due under the lease agreement and no renewal option is available. As the entire lease is prepaid, there is no associated lease liability.

In May 2020 the Company entered into a second amendment to the lease agreement to rent additional space in the same facility under the same terms as its existing facility lease except the terms of payment. Under the terms of the amendment, the Company will pay rent monthly for the additional space and the lease agreement will terminate in July 2021. The Company recorded an operating lease asset and liability of $172,000.

In May 2020 the Company entered into a lease agreement to rent space in San Diego, California for our clinical operations team. The lease agreement is for three years commencing July 1, 2020. Total payments under the lease will be $346,000. The Company paid a security deposit of $29,400 and is included in Other Assets on our June 30, 2020 balance sheets. The lease did not create any other significant rights or obligations.

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The Company recognizes lease expense on a straight-line basis over the term of its operating lease. As of June 30, 2020, future rent expense of $588,000 will be recognized over the remaining term of 13 months on a straight-line basis over the respective lease period.

Clinical Equipment Operating Lease

The Company uses certain vendor supplied equipment in connection with its on-going clinical trial. The Company has analyzed the vendor agreement and determined that it contains an embedded operating lease. The Company recognizes monthly the leases costs in our research and development expenses. The right of use asset and lease liability are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company’s lease does not provide an implicit rate. The Company used an adjusted historical incremental borrowing rate, based on the information available at the approximate lease commencement date, to determine the present value of lease payments. The remaining lease expense of $103,000 will be recognized over the remaining lease term of approximately 26 months.

Clinical Equipment Financing Lease

The Company uses certain vendor supplied equipment in connection with its on-going clinical trial. The Company has analyzed the vendor agreements and determined that they contain embedded finance leases. The Company recognizes the depreciation expense in research and development expenses in the statement of operations and recognizes expense on a straight-line basis starting when the equipment is placed into service until the end of the contract term ranging from 25 to 31 months. Amortization expense of the financing lease right of use asset for the six months ended June 30, 2020 and 2019 was $117,000 and $0 , respectively.

 

Supplemental balance sheet information related to leases as follows (in thousands except lease terms and discount rates):

 

 

Note 7. Stock-Based Compensation

On December 4, 2014, the Company’s stockholders approved the 2014 Stock Plan (“2014 Plan”) and amended the 2014 Plan on April 25, 2019.  The 2014 Plan was amended, restated and re-named the 2019 Equity Incentive Plan (the “2019 Plan”), which became effective as of May 7, 2019, the day prior to the effectiveness of the registration statement filed in connection with the IPO. The remaining shares available for issuance under the 2014 Plan were added to the shares reserved for issuance under the 2019 Plan.

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The 2019 Plan provides for the grant of stock options (including incentive stock options and non-qualified stock options), stock appreciation rights, restricted stock, RSUs, performance units, and performance shares to the Company’s employees, directors, and consultants.  The maximum aggregate number of shares that may be issued under the 2019 Plan is 5,131,549 shares of the Company’s common stock. In addition, the number of shares available for issuance under the 2019 Plan will be increased annually on the first day of each of its fiscal years beginning with fiscal 2020, by an amount equal to the least of (i) 2,146,354 shares of common stock; (ii) 4% of the outstanding shares of its common stock as of the last day of its immediately preceding fiscal year; and (iii) such other amount as the Company’s Board of Directors may determine.

The 2019 Plan may be amended, suspended or terminated by the Company’s Board of Directors at any time, provided such action does not impair the existing rights of any participant, subject to stockholder approval of any amendment to the 2019 Plan as required by applicable law or listing requirements. Unless sooner terminated by the Company’s Board of Directors, the 2019 Plan will automatically terminate on April 23, 2029.

As of June 30, 2020, the Company had 2,146,861 shares available for future issuance under the 2019 Plan.

For the three and six months ended June 30, 2020, the Company recognized $3,398,000 and $5,353,000 of stock-based compensation expense, respectively related to options granted to employees and non-employees. The compensation expense is allocated on a departmental basis, based on the classification of the option holder. No income tax benefits have been recognized in the statements of operations for stock-based compensation arrangements.

 

 

Future stock-based compensation for unvested employee and non-employee options granted and outstanding as of June 30, 2020 is $52.5 million with a weighted average remaining expense life of 2.2 years.

The following table summarizes employee and non-employee stock-based compensation expense for the three and six months ended June 30, 2020 and 2019 and the allocation within the statements of operations and comprehensive loss (in thousands):

 

 

Employee Stock Purchase Plan

On April 24, 2019, the Company’s Board of Directors adopted its 2019 Employee Stock Purchase Plan (“2019 ESPP”), which was subsequently approved by the Company’s stockholders and became effective on May 7, 2019, the day immediately prior to the effectiveness of the registration statement filed in connection with the IPO. The 2019 ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code (the “Code”) for U.S. employees. In addition, the 2019 ESPP authorizes grants of purchase rights that do not comply with Section 423 of the Code under a separate non-423 component for non-U.S. employees and certain non-U.S. service providers. The Company has reserved 536,989 shares of common stock for issuance under the 2019 ESPP. In addition, the number of shares reserved for issuance under the 2019 ESPP will be increased automatically on the first day of each fiscal year for a period of up to ten years, starting with the 2020 fiscal year, by a number equal to the least of: (i) 536,589 shares; (ii) 1% of the shares of common stock outstanding on the last day of the prior fiscal year; or (iii) such lesser number of shares determined by the Company’s Board of Directors. The 2019 ESPP is expected to be implemented through a series of offerings under which participants are granted purchase rights to purchase shares of the Company’s common stock on specified dates during such offerings. The Company has not yet approved an offering under the 2019 ESPP.

 

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Note 8. Related Party Transactions

In June 2014, the Company entered into a research grant and license agreement (the Agreement) with a stockholder of the Company. The Agreement requires the Company to pay royalties to the stockholder in the amount of 3% of gross revenues not to exceed $1.05 million. This agreement was amended in April 2019 and the royalty payment provision was removed.

As described in Note 6, the Company entered into a three-year lease agreement with a Series B redeemable preferred stock investor. The lease began on July 16, 2018 and provides 3,185 square feet of office space in South San Francisco, California. The Company issued 114,437 restricted shares of its Series B redeemable convertible preferred stock in exchange for the use of the leased facility.  In May 2019, the Company entered into an amendment to the lease agreement to rent additional space in the same building for a one-time payment of approximately $63,000 on the same terms as the July 2018 agreement except rent.

As described in Note 1, the Company completed its IPO in May 2019. As a result of the IPO, in addition to the 229,453 shares of Series B redeemable convertible preferred stock held by the investor, an additional 82,649 shares of the Company’s Series B redeemable convertible preferred stock under issued pursuant the lease agreement fully vested and were converted into common stock of the Company on a one-to-one basis.

As described in Note 1, on February 10, 2020, the Company issued and sold shares of common stock at a purchase price of $50.00 per share in a private placement. In the private placement, the Company issued and sold 30,000 shares of common stock for an aggregate purchase price of $1,500,000 to an entity affiliated with David A. Lamond, a member of the Company’s Board of Directors.

As described in Note 6, the Company entered into a second amendment to the lease agreement to rent additional space in the same facility under the same terms as its existing facility lease except the terms of payment. Under the terms of the amendment, the Company will pay rent monthly for the additional space and the lease agreement will terminate in July 2021. The Company recorded an operating lease asset and liability of $172,000.  

Note 9. Income Taxes

The Company has a history of losses and expects to record a loss in 2020.

The Company accounts for income taxes under ASC Topic 740 – Income Taxes. Under this standard, deferred tax assets and liabilities are recognized for future tax benefits or consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

A valuation allowance is provided for significant deferred tax assets when it is more likely than not that such assets will not be realized through future operations. No provision for income taxes has been recorded due to the available net operating loss carry forwards.   Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the future deferred tax assets.

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") into law. The Company has reviewed the aspects of this law as it relates to income taxes and have concluded that at this time, the CARES Act will have no material impact to the Company’s 2020 provision for income taxes. The Company will continue to evaluate the impact of the CARES Act on its financial position, results of operations and cash flows.

 

Note 10. Net Loss Per Share

The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share for the period presented due to their anti-dilutive effect:

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (i) our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (ii) our audited consolidated financial statements and related notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission, or the SEC, on March 16, 2020. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the “Company,” “Cortexyme,” “we,” “us” and “our” refer to Cortexyme, Inc. In preparing the Management’s Discussion and Analysis below, we presume the readers have access to and have read the Management’s Discussion and Analysis in our Prospectus, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this quarterly report, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, timing and likelihood of success, plans and objectives of management for future operations, adequacy of our cash resources and working capital, impact of COVID-19 pandemic on our research and development activities and business operations, and future results of anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this quarterly report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A -“Risk Factors,” and in our Annual Report on Form 10-K for the year ended December 31, 2019 and elsewhere in this Quarterly Report on Form 10-Q and in other filings we make with the SEC from time to time. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. These forward-looking statements speak only as of the date hereof. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

Overview

We are a clinical-stage biopharmaceutical company pioneering a novel disease-modifying therapeutic approach to treat what we believe to be a key underlying cause of Alzheimer’s and other degenerative diseases. Our approach is based on the seminal discovery of the presence of Porphyromonas gingivalis, or P. gingivalis, and its secreted toxic virulence factor proteases, called gingipains, in the brains of greater than 90% of more than 100 Alzheimer’s patients observed across multiple studies to date. Additionally, we have observed that P. gingivalis infection causes Alzheimer’s pathology in animal models, and these effects have been successfully treated with a gingipain inhibitor in preclinical studies. Our proprietary lead drug candidate, atuzaginstat (COR388), is an orally administered, brain-penetrating small molecule gingipain protease inhibitor. Atuzaginstat was well-tolerated with no concerning safety signals in our Phase 1a and Phase 1b clinical trials conducted to date, which enrolled a total of 67 subjects, including nine patients with mild to moderate Alzheimer’s disease. We initiated a global Phase 2/3 clinical trial of atuzaginstat, called the GAIN (GingipAIN Inhibitor for Treatment of Alzheimer’s Disease) trial, in mild to moderate Alzheimer’s patients in April 2019 in the United States and in September 2019 in Europe. We plan to conduct the interim analysis by the end of 2020 after approximately 100 patients in each of the GAIN trial’s three arms complete 24 weeks of treatment and expect top-line results by the end of 2021.

The GAIN Trial also includes an open-label extension (OLE) in the United States that began dosing patients in April 2020. Upon completing the 48-week placebo-controlled period of the GAIN Trial, participants in the GAIN Trial’s placebo and active arms in the U.S. may be eligible to enroll in the OLE study, where they will receive 40 mg or 80 mg of atuzaginstat twice daily for an additional 48 weeks. The OLE is intended to evaluate long-term safety and efficacy measures of participants in the GAIN Trial.

 

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Business Update Regarding COVID-19

 

The current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, patients, communities and business operations, as well as the U.S. economy and financial markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.

 

To date, our employees, vendors and clinical trial sites have been able to advance our GAIN clinical trial, continue randomizations and screenings and begin our Open Label Extension for those patients completing the GAIN trial. At this time the impact of the COVID-19 pandemic has not resulted in changes to our previously stated analysis timelines for the GAIN trial. We are continuing to assess the potential impact of the COVID-19 pandemic on our business and operations, including our expenses, preclinical operations and clinical trials. Our office-based employees have been working primarily from home since mid-March 2020, while ensuring essential staffing levels in our operations remain in place, including maintaining key personnel in our lab facility. We are not currently experiencing any significant supply chain disruptions and have drug supply for the full GAIN Trial on hand. We have diversified our vendor relationships geographically for both starting materials and manufacturing.  However, in the future, the ongoing COVID-19 pandemic, may result in the inability of some of our suppliers to deliver drug supplies on a timely basis. The Company has taken and continues to take proactive measures to maintain the integrity of its ongoing clinical trial. Despite these efforts, the COVID-19 pandemic could impact clinical trial enrollment and its completion. The Company will continue to monitor the COVID-19 situation and its impact on the ability to continue the development of, and seek regulatory approvals for, the Company’s product candidates.

 

 

For additional information on the various risks posed by the COVID-19 pandemic, please read Item 1A. Risk Factors included in this report.

Components of Results of Operations

Operating Expenses

Research and Development Expenses

Our research and development expenses consist of expenses incurred in connection with the research and development of our research programs. These expenses include payroll and personnel expenses, including stock-based compensation, for our research and product development employees, laboratory supplies, product licenses, consulting costs, contract research, preclinical and clinical expenses, allocated rent, facilities costs and depreciation. We expense both internal and external research and development costs as they are incurred. Non-refundable advance payments and deposits for services that will be used or rendered for future research and development activities are recorded as prepaid expenses and recognized as an expense as the related services are performed.

To date, substantially all of our research and development expenses have supported the advancement of atuzaginstat and our other drug candidates are in preclinical development. As a result, we do not allocate our costs to individual drug candidates. We expect that at least for the foreseeable future, a substantial majority of our research and development expense will support the clinical and regulatory development of atuzaginstat.

We expect our research and development expenses to increase substantially during the next few years as we seek to complete existing and initiate additional clinical trials, pursue regulatory approval of atuzaginstat and advance other drug candidates into preclinical and clinical development. Over the next few years, we expect our preclinical, clinical and contract manufacturing expenses to increase significantly relative to what we have incurred to date. Predicting the timing or the final cost to complete our clinical program or validation of our manufacturing and supply processes is difficult and delays may occur because of many factors.

We initiated a global Phase 2/3 clinical trial of atuzaginstat, called the GAIN trial, in mild to moderate Alzheimer’s patients in April 2019 in the United States and in September 2019 in Europe.  We plan to conduct the interim analysis by the end of 2020 after approximately 100 patients in each of the GAIN trial’s three arms complete 24 weeks of treatment and expect top-line results by the end of 2021. Patients successfully completing the 48-week placebo-controlled period of the GAIN trial are eligible to participate in the open-label extension (OLE) in the United States. We started dosing patients in the OLE starting in April 2020 where they receive 40 mg or 80 mg of atuzaginstat twice daily for an additional 48 weeks. The OLE is intended to evaluate the long-term safety and efficacy measures of participants in the GAIN trial.  

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The duration, costs and timing of our clinical trial and development of our product candidates will depend on a variety of factors that include, but are not limited to, the following:

 

Because our product candidate is in clinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidate or whether, or when, we may achieve profitability.

 

The COVID-19 pandemic may have an adverse impact on our operations, supply chains, our current or future clinical trials, and increase our expenses, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are taking.

 

General and Administrative

General and administrative expenses consist principally of personnel-related costs, including payroll and stock-based compensation, for personnel in executive, finance, human resources, business and corporate development, and other administrative functions, professional fees for legal, consulting, insurance and accounting services, allocated rent and other facilities costs, depreciation, and other general operating expenses not otherwise classified as research and development expenses.

We anticipate that our general and administrative expenses will continue to increase as a result of staff expansion and additional occupancy costs, as well as costs associated with being a public company, including higher legal and accounting fees, investor relations costs, higher insurance premiums and other compliance costs associated with being a public company.

Interest Income

Interest income consists of interest earned on our cash equivalents and investments recognized during the period.

Results of Operations

Three Months Ended June 30, 2020 and 2019

The following sets forth our results of operations for the three months ended June 30, 2020 (in thousands):

 

 

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Research and Development Expenses (in thousands)

 

 

Research and development expenses were $14.1 million for the three months ended June 30, 2020, compared to $7.1 million for the three months ended June 30, 2019. The increase of $7.0 million was driven mostly by increasing patient enrollments in the GAIN trial resulting in increases of $2.7 million in clinical trial expenses for our lead product candidate, atuzaginstat which entered into Phase 2/3 clinical trials in 2019, $1.5 million in drug manufacturing costs to support the clinical trial and $0.5 million in non-clinical related costs. Additionally, we experienced a net increase of $2.2 million in personnel related expenses primarily due to an increase in our employee headcount which was comprised of an increase in compensation and benefit costs of $0.5 million and $1.7 million in allocated stock-based compensation costs.

General and Administrative Expenses

General and administrative expenses increased $1.7 million to $4.2 million for the three months ended June 30, 2020 from $2.5 million for three months ended June 30, 2019 primarily due to an increase in personnel costs due to an increase in our employee headcount which was comprised of an increase in compensation and benefits costs of $0.4 million and $1.3 million in allocated stock-based compensation expense.

Interest Income

Interest income was $0.7 million for the three months ended June 30, 2020 compared to $0.5 million for the three months ended June 30, 2019. The increase was a result of increased average cash and investment balances from the proceeds of private placement which closed in February 2020 and our initial public offering which closed in May 2019.

We anticipate overall yields from our investment portfolio will remain at historic lows in future quarters due to the impact of the COVID-19 pandemic on the financial markets, specifically the credit securities markets.  

Six Months Ended June 30, 2020 and 2019

The following sets forth our results of operations for the six months ended June 30, 2020 (in thousands):

 

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Research and Development Expenses (in thousands)

 

 

Research and development expenses were $28.5 million for the six months ended June 30, 2020, compared to $11.9 million for the six months ended June 30, 2019. The increase of $16.6 million was driven mostly by increasing patient enrollments in the GAIN trial resulting in $7.9 million in clinical trial expenses for our lead product candidate, atuzaginstat which entered into Phase 2/3 clinical trials in 2019, $3.1 million in drug manufacturing costs to support the clinical trial and $1.1 million in non-clinical related costs. We also experienced a net increase of $4.1 million in personnel related expenses due to an increase in our employee headcount which was comprised of an increase in compensation and benefit costs of $1.6 million and $2.5 million in allocated stock-based compensation costs. Additionally, facility and other non-clinical costs increased $0.3 million due primarily to pipeline research.

General and Administrative Expenses

General and administrative expenses increased approximately $4.0 million to $7.7 million for the six months ended June 30, 2020 from $3.7 million for the six months ended June 30, 2019. The increase in general and administrative expenses was primarily due to an increase of $3.2 million in personnel costs due to an increase in our employee headcount which was comprised of an increase in compensation and benefits costs of $0.9 million and $2.3 million in allocated stock-based compensation expense and increases in $0.8 million in insurance expense associated with becoming a public company.

Interest Income

Interest income was $1.3 million for the six months ended June 30, 2020 compared to $0.9 million for the six months ended June 30, 2019. The increase was a result of increased average cash and investment balances from the proceeds of private placement which closed in February 2020 and our initial public offering which closed in May 2019.

We anticipate overall yields from our investment portfolio will remain at historic lows in future quarters due to the impact of the COVID-19 pandemic on the financial markets, specifically the credit securities markets.  

Liquidity, Capital Resources and Plan of Operations

We have incurred cumulative net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future. As of June 30, 2020, we had an accumulated deficit of $104.6 million and had cash, cash equivalents and short-term investments of $144.5 million. Although our investment portfolio contains some debt securities that have experienced negative credit downgrades, based on our current cash requirements, we believe that we will continue to be able to hold all securities to their final maturity and not realize material gains or losses in the available for sale portfolios.

Based on our existing business plan, we believe that our existing cash, cash equivalents, and short-term investments will be sufficient to fund our anticipated level of operations for a period of at least one year from the date this Quarterly Report on Form 10-Q is filed with the Securities and Exchange Commission.

Capital Resources

Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures related to our Phase 2/3 drug candidate, atuzaginstat, research on our proprietary library of small molecules, additional pipeline candidates and other research efforts, and to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

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Our lead product candidate is in the early stages of clinical development and the outcome of these efforts is uncertain. Accordingly, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise capital when needed, we will need to delay, reduce or terminate planned activities to reduce costs.  Doing so will likely harm our ability to execute our business plans. We may also be required to sell or license to others rights to our drug candidate in certain territories or indications that we would prefer to develop and commercialize ourselves.

We completed an initial public offering; or the IPO in May 2019 by issuing and selling 5,073,800 shares of common stock at a public offering price of $17.00 per share, including 661,800 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares. The aggregate net proceeds received by us from the offering, net of underwriting discounts and commissions and offering expenses, was approximately $77.8 million. Upon the closing of the IPO, all of the outstanding shares of redeemable convertible preferred stock automatically converted into 18,161,027 shares of common stock. Subsequent to the closing of the IPO, there were no shares of redeemable convertible preferred stock outstanding.

In February 2020, we completed a private placement by issuing and selling 2,500,000 shares at $50.00 per share. The aggregate net proceeds received by us from the offering net of offering expenses, was approximately $117.6 million.

Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic.  However, based on our current business plans, we believe that our existing cash, cash equivalents and investments will be sufficient to fund our planned operations through 2022, including through the completion and the announcement of the top-line results of our Phase 2/3 GAIN trial.

Cash Flows

The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below (in thousands):

 

 

Operating Activities

Net cash used in operating activities was $25.2 million for the six months ended June 30, 2020. Cash used in operating activities was primarily due to our net loss of $34.8 million for the period, adjusted for $5.9 million of non-cash items, including $5.4 million in stock-based compensation and a net increase in accounts payable, accrued expenses and other current liabilities of $4.6 million offset by increases in our current assets of $0.9 million.

Net cash used in operating activities was $13.5 million for the six months ended June 30, 2019 and was primarily due to our net loss for the period of $14.7 million, adjusted for $0.4 million of non-cash items and a net increase in accounts payable, accrued expenses and other current liabilities of $5.6 million offset by an increase in operating assets of 4.8 million related to activities surrounding our GAIN clinical trial.

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Investing Activities

Cash used by investing activities was $78.6 million for the six months ended June 30, 2020, primarily related to the purchase of available for sale investment securities with the proceeds from the private placement transaction which closed in February 2020.

Cash used by investing activities was $44.7 million in the six months ended June 30, 2019, primarily related to investment of the IPO proceeds received in May 2019

Financing Activities

Cash provided by financing activities was $118.7 million for the six months ended June 30, 2020, which consisted primarily of net proceeds from the private placement transaction and the proceeds from the exercise of stock options.

Cash provided by financing activities was $77.9 million in the six months ended June 30, 2019, primarily related to the IPO proceeds received in May 2019.

Contractual Obligations and Commitments

Commitments

There have been no material changes to our contractual obligations and other commitments as of June 30, 2020, as compared to those disclosed in our Annual Report on Form 10-K.

We enter into contracts in the normal course of business with third party contract organizations for clinical trials, non-clinical studies and testing, manufacturing, and other services and products for operating purposes. The amount and timing of the payments under these contracts varies based upon the timing of the services.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under the rules and regulations of the SEC.

JOBS Act

As an emerging growth company under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley.

We will remain an emerging growth company until December 31, 2020.

Critical Accounting Policies, Significant Judgments and Use of Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe that the assumptions and estimates associated with accrued research and development expenditures and stock-based compensation have the most significant impact on our condensed financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

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The following critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies, Significant Judgements and Use Estimates” in our 2019 Annual Report on Form 10-K and the notes to the unaudited condensed financial statements included in Item 1, “Unaudited Financial Statements,” of this Quarterly Report on Form 10-Q. We believe that of our critical accounting policies, the following accounting policies are the most critical to fully understanding and evaluating our financial condition and results of operations:  

Recent Accounting Pronouncements

Please refer to Note 2 to our unaudited condensed financial statements appearing under Part 1, Item 1 of this report for a discussion of new accounting standards updates that may impact us.

Available information

Our corporate website address is www.cortexyme.com. We use the investor relations page of our website for purposes of compliance with Regulation FD and as a routine channel for distribution of important information, including news releases, analyst presentations, financial information and corporate governance practices. Our filings with the SEC are posted on our website and available free of charge as soon as reasonably practical after they are electronically filed with, or furnished to, the SEC. The SEC's website, www.sec.gov, contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. The content on any website referred to in this Quarterly Report on Form 10-Q is not incorporated by reference in this Form 10-Q unless expressly noted. Further, the Company’s references to website URLs are intended to be inactive textual references only.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. The primary objective of our investment activities is to preserve capital to fund our operations. We also seek to maximize income from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of investments in a variety of securities of high credit quality and short-term duration, invested in compliance with our policy.

We had cash, cash equivalents, and marketable securities of $210.6 million as of June 30, 2020, which consisted primarily of bank deposits, money market funds, short-term and long-term marketable securities. Such interest-earning instruments carry a degree of interest rate risk; however, historical fluctuations in interest income have not been significant for us. Due to the short-term maturities of our cash equivalents and marketable securities, and the low risk profile of our marketable securities, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash equivalents and marketable securities.

We do not believe that inflation, interest rate changes, or exchange rate fluctuations had a significant impact on our results of operations for the three or six months ended June 30, 2020.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended or the Exchange Act, is recorded, communicated to our management to allow timely decisions regarding required disclosure, summarized and reported within the time periods specified in the SEC's rules and forms. Any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of our management, including the Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of June 30, 2020. Based on that evaluation, the CEO and CFO have concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

From time to time, we may be involved in litigation relating to claims arising out of our operations. We are not currently a party to any material legal proceedings. We may, however, be involved in material legal proceedings in the future. Such matters are subject to uncertainty and there can be no assurance that such legal proceedings will not have a material adverse effect on our business, results of operations, financial position or cash flows.

 

Item 1A. Risk Factors.

Except as discussed below, there have been no material changes to the risk factors previously disclosed by us in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on March 16, 2020.  You should carefully consider the following risks and the risks included in our Annual Report on Form 10-K, together with all of the other information in this Quarterly Report on Form 10-Q, including our unaudited condensed financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q.  The occurrence of any single risk or any combination of risks could materially and adversely affect our business, financial condition, results of operations, cash flows and the trading price of our common stock.

We will require substantial additional funding to finance our operations, complete the development and commercialization of atuzaginstat (COR388) and evaluate future drug candidates. If we are unable to raise this funding when needed, we may be forced to delay, reduce or eliminate our drug development programs or other operations.

Since our inception, we have used substantial amounts of cash to fund our operations, and we expect our expenses to increase substantially in the foreseeable future in connection with our ongoing activities, particularly as we continue the research and development of, initiate clinical trials of, and seek marketing approval for atuzaginstat. Developing atuzaginstat and conducting clinical trials for the treatment of Alzheimer’s disease and any other indications that we may pursue in the future will require substantial amounts of capital. In addition, if we obtain marketing approval for atuzaginstat or any future drug candidates, we expect to incur significant commercialization expenses related to sales, marketing, manufacturing and distribution.  Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations.

We believe that our existing capital resources will be sufficient to fund our projected operations through at least 2022. However, changing circumstances may cause us to increase our spending significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. We may need to raise additional funds sooner than we anticipate if we choose to expand more rapidly than we presently anticipate. The amount and timing of our future funding requirements will depend on many factors, some of which are outside of our control, including but not limited to:

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Additional funding may not be available to us on acceptable terms or at all. Any such funding may result in dilution to stockholders, imposition of debt covenants and repayment obligations, or other restrictions that may affect our business. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail one or more of our research or development programs. We also could be required to seek funds through arrangements with collaborative partners or otherwise that may require us to relinquish rights to some of our technologies or drug candidates or otherwise agree to terms unfavorable to us. Additionally, while the potential global economic impact and the duration of the COVID-19 pandemic may be difficult to assess or predict, a widespread pandemic could result in significant long-term disruption of global financial markets, which could in the future reduce our ability to access capital and negatively affect our liquidity. In addition, the trading prices for our common stock and other biopharmaceutical companies, as well as the broader equity and debt markets, have been highly volatile as a result of the COVID-19 pandemic and the resulting impact on economic activity. Furthermore, a recession or market correction resulting from the spread of COVID-19 could materially affect our operations, overall yields from our investment portfolio and the value of our common stock.

We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our drug candidates.

We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our drug candidates, including:

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For example, enrollment in our clinical trials may be delayed or impeded as a result of the COVID-19 pandemic due to prioritization of healthcare resources toward the pandemic, and some patients may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services.  In addition, we may experience increased rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19 or other health conditions or because of quarantines or travel limitations (whether voluntary or required). If the patients involved with our clinical trials contract COVID-19, we may have more adverse events and deaths in our clinical trials as a result.  The occurrence of any of these events could delay or impede our ability to release clinical results, delay or impact our clinical trials, including the integrity and completeness of subject data and clinical study endpoints, and could adversely impact our product candidate testing, development and timelines.

We may be exposed to a variety of international risks that could materially adversely affect our business.

We may enter into agreements with third parties for the development and commercialization of drug candidates in international markets. International business relationships will subject us to additional risks that may materially adversely affect our ability to attain or sustain profitable operations, including:

Natural disasters, public health crises, political crises, and other catastrophic events or other events outside of our control may be detrimental to our capabilities or the capabilities of third parties on which we depend.

Our headquarters are located in California near major geologic faults that have experienced earthquakes in the past. An earthquake or other natural disaster or power shortages or outages could disrupt operations, impair critical systems or result in loss of clinical samples. Any of these disruptions or other events outside of our control could have a material adverse impact on our business, harming our operating results. In addition, if any of our  suppliers or third-party service providers, such as our manufacturing partners or CROs, are affected by natural disasters, such as earthquakes, tsunamis, power shortages or outages, floods or monsoons, public health crises, such as pandemics and epidemics, political crises, such as terrorism, war, political instability or other conflict, cyberattacks, or other events outside of our control, our business and operating results could suffer. Disasters, public health crises and

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political crises occurring at third-party facilities also could negatively impact our clinical development and regulatory approval timelines, our reputation and the perception of our company. For example, as a result of the COVID-19 pandemic, we and our third-party service providers have limited our operations or implemented limitations, including work-from-home policies. Our and our third-party service providers increased reliance on personnel working from home may negatively impact productivity, or disrupt, delay, or otherwise adversely impact our business. The increase in working remotely could increase cybersecurity risk, create data accessibility concerns, and make us and our third-party service providers more susceptible to communication disruptions, any of which could adversely impact our or their business operations or delay necessary interactions with local and federal regulators, manufacturing sites, clinical trial sites, and other third parties. In addition, as a result of shelter-in-place orders or other mandated travel restrictions, our on-site staff conducting research and development activities may not be able to access our laboratories, and these core activities may be significantly limited or curtailed, possibly for an extended period of time. Further, due to travel restrictions and “shelter in place” orders, we may experience limitations on the ability to recruit and hire key personnel due to the inability to meet with candidates and reduced ability to engage with the medical and investor communities due to the cancelation of conferences scheduled throughout the year. We also may experience operational challenges caused by sickness of our employees or their families, the desire of employees to avoid contact with large groups of people, and an increased reliance on working from home or mass transit disruptions. Furthermore, new quarantines for COVID-19 or other viruses could impact personnel at contract manufacturing facilities in China, Europe or elsewhere to deliver key materials or the availability or cost of starting materials. Any disruption of our ability to manufacture atuzaginstat or the ability of our contract manufacturing vendors in China, Europe or elsewhere to deliver key materials on a timely basis could have a material adverse effect on the initiation of new trials, the duration of open label extension studies and overall product development. In addition, we may experience delays or disruptions in non-clinical experiments and supplies for such experiments, including animals required for such experiments. These and other factors arising from the COVID-19 pandemic could worsen in countries that are already afflicted with COVID-19, could continue to spread to additional countries, or could return to countries where the pandemic has been partially contained, each of which could further adversely impact our ability to conduct clinical trials and our business generally, and could have a material adverse impact on our operations and financial condition and results.

Changes in funding for the FDA and other government agencies or other disruptions at these agencies could prevent new products and services from being developed or commercialized in a timely manner, which could negatively impact our business.

The ability of the FDA to review and approve new drugs can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may prolong the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.  As a result of the COVID-19 pandemic, health regulatory agencies globally have experienced and may continue to experience disruptions in their operations.  The FDA, EMA and comparable foreign regulatory agencies may have slower response times or be under-resourced to continue discussions with us regarding the scope or design of our clinical trials and, as a result, review, inspection, and other timelines may be materially delayed. It is unknown how long these disruptions could continue, were they to occur. Any elongation or de-prioritization of our clinical trials or delay in regulatory review resulting from such disruptions could affect the development and study of atuzaginstat.

The market price of our common stock is likely to be volatile and could fluctuate or decline, resulting in a substantial loss of your investment.

The market price of our common stock has been and may continue to be volatile and could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:

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Furthermore, the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our common stock.  In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ abilities to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation provides that, unless we consent to the selection of an alternative forum, to the fullest extent permitted by law, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for:

provided that, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction; and provided further that, if and only if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state or federal court sitting in the State of Delaware. Our amended and restated certificate of incorporation also provides that the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action against us or any of our directors, officers, employees or agents and arising under the Securities Act.

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We believe these provisions may benefit us by providing increased consistency in the application of Delaware law and federal securities laws by chancellors and judges, as applicable, particularly experienced in resolving corporate disputes, efficient administration of cases  on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, these provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees. While the Delaware Supreme Court recently determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring such a claim arising under the Securities Act against us, our directors, officers, or other employees in a venue other than in the federal district courts of the United States of America. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation, and this may require significant additional costs associated with resolving such action in other jurisdictions.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Unregistered Sales of Equity Securities

None.

Issuer Repurchases of Equity Securities

None.

Use of Proceeds

On May 8, 2019, our registration statement on Form S-1 (File No. 333-230853) was declared effective by the SEC for our IPO. At the closing of the offering on May 13, 2019, we sold 5,073,800 shares of common stock, which included the exercise in full by the underwriters of their option to purchase additional shares, at an IPO price of $17.00 per share and received gross proceeds of $86.3 million, which resulted in net proceeds to us of approximately $77.8 million, after deducting underwriting discounts and commissions of approximately $6.0 million and offering-related transaction costs of approximately $2.5 million. None of the expenses associated with the IPO were paid to directors, officers, persons owning ten percent or more of any class of equity securities, or to their associates, or to our affiliates. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse Securities (USA) LLC. acted as joint book-running managers for the offering.

There has been no material change in the planned use of proceeds from our IPO from that described in the final prospectus filed by us with the SEC on May 9, 2019.

 

Item 3. Defaults Upon Senior Securities.

Not Applicable.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

The exhibits filed or furnished as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which Exhibit Index is incorporated herein by reference.

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

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Exhibit 10.1

 

SECOND AMENDMENT TO SUB‑SUBLEASE

THIS SECOND AMENDMENT TO SUB‑SUBLEASE (this “Second Amendment”) is made and entered into effective as of May 26, 2020 (the “Effective Date”), by and between VERILY LIFE SCIENCES LLC, a Delaware limited liability company (“Sub‑Sublandlord”), and CORTEXYME, INC., a Delaware corporation (“Sub‑Subtenant”).

R E C I T A L S :

A.Sub‑Sublandlord and Sub‑Subtenant are parties to that certain Sub‑Sublease dated as of June 18, 2018 (the “Original Sub‑Sublease”), as amended by that certain Amendment 1 to Sub‑Sublease dated as of April 2, 2020 (the “First Amendment”), pursuant to which Sub‑Sublandlord is currently sub‑subleasing to Sub‑Subtenant, and Sub‑Subtenant is currently sub‑subleasing from Sub‑Sublandlord, certain space (the “Existing Sub‑Subleased Premises”) containing approximately 3,464 rentable square feet located on the third (3^rd) floor of that certain building addressed as 259 East Grand Avenue in South San Francisco, California (the “Building”). The Original Sub‑Sublease, as amended by the First Amendment is referred to herein as the “Sub‑Sublease.”

B.Sub‑Sublandlord and Sub‑Subtenant now desire to amend the Sub‑Sublease:  (i) to expand the Existing Sub‑Subleased Premises to include that certain space (the “Expansion Space”) commonly known as Suite C334 containing approximately 1,447 rentable square feet located on the third (3^rd) floor of the Building, as depicted on Exhibit A attached hereto; and (ii) to modify various terms and provisions of the Lease, all as hereinafter provided.

A G R E E M E N T :

NOW THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Capitalized Terms.  All capitalized terms when used herein shall have the same meanings given to such terms in the Sub‑Sublease unless expressly superseded by the terms of this Second Amendment.

2.Expansion Space.

2.1Addition of Expansion Space.  Commencing on the Expansion Commencement Date (as defined below), the Existing Sub‑Subleased Premises shall be expanded to include the Expansion Space, which Expansion Space shall be sub‑subleased on the same terms and conditions set forth in the Sub‑Sublease, as hereby amended.  From and after the Expansion Commencement Date, the Existing Sub‑Subleased Premises and the Expansion Space shall be collectively referred to as the “Sub‑Subleased Premises” and shall contain a total of approximately 4,911 rentable square feet.

4137-2446-0582.2

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2.2Expansion Space Term.  The lease term for the Expansion Space (the “Expansion Term”) shall commence on June 1, 2020 (the “Expansion Commencement Date”) and shall expire coterminously with the lease term for the Existing Sub‑Subleased Premises on the Expiration Date.

3.Monthly Base Rent.  Starting as of the Expansion Commencement Date and continuing until the Expiration Date, Sub‑Subtenant shall pay installments of monthly Base Rent to Sub‑Sublandlord for the Expansion Space (the “Expansion Space Base Rent”) as set forth in the following schedule:

 

 

4.Sub‑Subtenant’s Share.  For avoidance of doubt, Sub‑Subtenant shall not be obligated to pay Sub‑Subtenant’s Share of the charges for “Operating Expenses,” as defined in Section 5 of the Master Lease Agreement, and “Taxes,” as defined in Section 9 of the Master Lease Agreement, with respect to the Expansion Space, except as otherwise set forth in the Sub‑Sublease, as hereby amended.

5.Condition of Premises.  Sub‑Subtenant (a) shall continue to accept and occupy the Existing Sub‑Subleased Premises and the Building, in their current “AS IS” condition as of the Effective Date, and (b) shall accept the Expansion Space broom clean and free and clear of trash and debris, and free and clear of Sub‑Sublandlord’s personal property, except for any items of furniture or other personal property listed on Exhibit B attached hereto and made a part hereof, and otherwise in its then current “AS‑IS” condition, in each instance, without any agreements, representations, understandings or obligations on the part of Sub‑Sublandlord to perform or pay for any alterations, repairs or improvements to the Existing Sub‑Subleased Premises or the Expansion Space, except as otherwise expressly set forth in the Sub‑Sublease, as hereby amended.

6.Alterations.  Sub‑Subtenant, shall have the right, at its sole cost and expense, to:  (i) construct offices (the “Sub‑Sublease Offices”) in the Sub‑Subleased Premises, upon thirty (30) days prior written notice to Sub‑Sublandlord, and (ii) remove the demising wall (the “Demising Wall”) located between the Existing Sub‑Subleased Premises and the Expansion Space. Notwithstanding anything contained in the Sub‑Sublease, as hereby amended, to the contrary, on or prior to the expiration or early termination of the Expansion Term, Sub‑Subtenant shall, at its sole cost and expense, rebuild the Demising Wall to its condition existing as of the date hereof, using standard building finishes and materials; provided, however, at Sub‑Sublandlord’s election, Sub‑Subtenant, in lieu of rebuilding the Demising Wall, shall pay to Sub‑Sublandlord an amount equal to the estimated costs (both hard and soft) to reconstruct the Demising Wall, as reasonably determined by Sub‑Sublandlord. Sub‑Subtenant’s construction of the Sub‑Sublease Offices and its removal and rebuilding of the Demising Wall shall each be in accordance with the provisions of Sections 5 and 8 of the Sub‑Sublease, including, without limitation, subject to receipt of Master Landlord and/or Sublandlord’s consent, as applicable.

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7.California Civil Code Section 1938 Statement.  For purposes of Section 1938(a) of the California Civil Code, Sub‑Sublandlord hereby discloses to Sub‑Subtenant, and Sub‑Subtenant hereby acknowledges, that the Expansion Space have not undergone inspection by a Certified Access Specialist (CASp) to the actual knowledge of Sub‑Sublandlord.  In addition, the following notice is hereby provided as required by Section 1938(e) of the California Civil Code:  “A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction‑related accessibility standards under state law. Although state law does not require a CASp inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction‑related accessibility standards within the premises.”  In furtherance of and in connection with such notice:  (i) Sub‑Subtenant, having read such notice and understanding Sub‑Subtenant’s right to request and obtain a CASp inspection and with advice of counsel, hereby elects not to obtain such CASp inspection and forever waives its rights to obtain a CASp inspection with respect to the Expansion Space, the Existing Sub‑Subleased Premises, the Building and/or the Project to the extent permitted by applicable laws now or hereafter in effect; and (ii) if the waiver set forth in clause (i) hereinabove is not enforceable pursuant to applicable laws now or hereafter in effect, then Sub‑Sublandlord and Sub‑Subtenant hereby agree as follows (which constitute the mutual agreement of the parties as to the matters described in the last sentence of the foregoing notice):  (A) Sub‑Subtenant shall have, subject to the prior written approval of the Master Landlord, the one‑time right to request for and obtain a CASp inspection, which request must be made, if at all, in a written notice delivered by Sub‑Subtenant to Sub‑Sublandlord within thirty (30) days after the Effective Date; (B) any CASp inspection timely requested by Sub‑Subtenant and approved by the Master Landlord shall be conducted (1) between the hours of 9:00 a.m. and 5:00 p.m. on any business day, (2) only after ten (10) days’ prior written notice to Sub‑Sublandlord of the date of such CASp inspection, (3) in a professional manner by a CASp designated by Sub‑Sublandlord and without any testing that would damage the Expansion Space, the Existing Sub‑Subleased Premises, the Building or the Project in any way, (4) in accordance with all of the provisions of the this Sub‑Sublease and the Master Lease applicable to Sub‑Subtenant contracts for construction, and (5) at Sub‑Subtenant’s sole cost and expense, including, without limitation, Sub‑Subtenant’s payment of the fee for such CASp inspection, the fee for any reports and/or certificates prepared by the CASp in connection with such CASp inspection (collectively, the “CASp Reports”) and all other costs and expenses in connection therewith; (C) Sub‑Sublandlord (and the Master Landlord, at its request) shall be an express third party beneficiary of Sub‑Subtenant’s contract with the CASp, and any CASp Reports shall be addressed to both Sub‑Sublandlord and Sub‑Subtenant (and to the Master Landlord, at its request); (D) Sub‑Subtenant shall deliver a copy of any CASp Reports to Sub‑Sublandlord within two (2) business days after Sub‑Subtenant’s receipt thereof; (E) any information generated by the CASp inspection and/or contained in the CASp Reports shall not be disclosed by Sub‑Subtenant to anyone other than (I) contractors, subcontractors, attorneys and/or consultants of Sub‑Subtenant, in each instance who have a need to know such information and who agree in writing not to further disclose such information, or (II) any governmental entity, agency or other person, in each instance to whom disclosure is required by law or by regulatory or judicial process; (F) Sub‑Subtenant, at its sole cost and expense, shall be responsible for making any improvements, alterations, modifications and/or repairs to or within the Sub‑Subleased Premises to correct violations of construction‑related accessibility standards, including, without limitation, any violations disclosed by such CASp inspection; and (G) if such CASp inspection identifies any improvements, alterations, modifications and/or repairs necessary to correct violations of construction‑related accessibility standards relating to those items of the Building and/or the Project located outside the Sub‑Subleased Premises then, at the Master Landlord’s election, either Sub‑Subtenant or the Master Landlord shall perform such improvements, alterations, modifications and/or repairs as and to the extent required by applicable laws to correct such violations, in either instance at Sub‑Subtenant’s sole cost and expense.

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8.Brokers.  Sub‑Sublandlord and Sub‑Subtenant each hereby represents and warrants to the other that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Second Amendment, and that it knows of no real estate broker or agent who is entitled to a commission in connection with this Second Amendment. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, and costs and expenses (including, without limitation, reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any breach of the foregoing representation and warranty by the indemnifying party in connection with this Second Amendment.

9.Authority.  Sub‑Subtenant represents and warrants to Sub‑Sublandlord that (i) the person or persons executing this Second Amendment for Sub‑Subtenant are fully authorized to so act and no other action is required to bind Sub‑Subtenant to this Second Amendment; and (ii) Sub‑Subtenant has the right and power to execute and deliver this Second Amendment and to perform its obligations hereunder, subject only to the consent of Master Landlord and Sublandlord.

10.Counterparts.  This Second Amendment may be executed in any number of counterparts, which may be delivered electronically, via facsimile or by other means.  Each party may rely upon signatures delivered electronically or via facsimile as if such signatures were originals.  Each counterpart of this Second Amendment shall be deemed to be an original, and all such counterparts (including those delivered electronically or via facsimile), when taken together, shall be deemed to constitute one and the same instrument.

11.No Further Modification.  Except as set forth in this Second Amendment, all of the terms and provisions of the Sub‑Sublease are hereby ratified and confirmed and shall remain unmodified and in full force and effect.  In the event of any conflict between the terms and conditions of the Sub‑Sublease and the terms and conditions of this Second Amendment, the terms and conditions of this Second Amendment shall prevail.

[SIGNATURES CONTAINED ON THE FOLLOWING PAGE]

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IN WITNESS WHEREOF, the parties have caused this Second Amendment to be duly executed by their duly authorized representatives as of the date first above written.

 

 

5

 

Exhibit 10.3

 

269 East Grand Ave.

South San Francisco, CA 94080

 

April 27, 2020

 

 

Kristen Gafric

2845 Union Street

San Diego, CA 92103

Dear Kristen:

This letter (the “Agreement”) confirms the agreement between you and Cortexyme, Inc., a Delaware corporation (the “Company”), regarding the end of your employment with the Company.

1.Resignation. By signing this Agreement, you hereby confirm your prior resignation as the Company’s Senior Vice President, Legal and Administration, as its Secretary and from any and all other officer positions held by you with the Company or any of its affiliates, effective April 27, 2020. Further, as discussed, your last day of employment with the Company will be May 1, 2020 (your “Final Day”) and you hereby resign from your employment and any other positions with the Company effective at close of business on the Final Day.  You agree to execute and deliver any additional documentation as may be necessary to give effect to such resignations.  You further agree that you will not represent to anyone after your Final Day that you are still an employee or officer of the Company or any of its affiliates, and you will not say or do anything purporting to bind the Company or any of its affiliates.

2.No Other Monies Owed. No later than your Final Day, you will be paid all of your wages earned through your Final Day (the “Final Wage Payment”). You acknowledge and agree:

a.That, prior to the execution of this Agreement, you were not entitled to receive any further payments or benefits from the Company other than your Final Wage Payment and the benefits required pursuant to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) and similar state law, and the only payments and other benefits that you are entitled to receive from the Company in the future are those specified in this Agreement; and

b.You agree that you did not suffer an injury covered by workers’ compensation in the course and scope of your employment with the Company.

Any unreimbursed business expenses you incurred while working for the Company must be submitted to accounting@cortexyme.com with supporting documentation within 5 days of your Final Day.

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3.Severance. Although you are not otherwise entitled to receive any severance from the Company, subject to, and in consideration for, you returning an executed copy of this Agreement to the Company on or before 5:00 p.m. PT on May 19, 2020 and your non-revocation of this Agreement, and subject to your compliance in all material respects with the terms and conditions of this Agreement, and the Confidential Information and Invention Assignment Agreements entered into by and between you and the Company effective June 13, 2012 and December 19, 2015 (together, the “Confidentiality Agreements”), the Company will pay you severance in an amount equal to 6 months of your current base salary (a total of $190,000), which severance will be paid to you in a single lump-sum amount on the Company’s first regularly scheduled payroll date that occurs on or after the Effective Date (as defined in Section 7 below), less all applicable withholdings and other required deductions.

4.Equity. You acknowledge and agree that the Company previously granted you the following stock options to purchase shares of the Company’s Common Stock pursuant to the Company’s 2014 Stock Plan (which plan was amended, restated and renamed as the 2019 Equity Incentive Plan, the “Plan”), which stock options are outstanding as of the date of this Agreement: (i) on June 2, 2017, the Company granted you an option to purchase 18,382 shares (as adjusted to reflect the reverse 1 for 0.367647 stock split effected April 25, 2019, the “Reverse Stock Split”), of which 13,020 shares will be vested as of your Final Day, (ii) on January 11, 2018, the Company granted you an option to purchase 18,382 shares (as adjusted to reflect the Reverse Stock Split), of which 11,871 shares will be vested as of your Final Day, (iii) on August 15, 2019, the Company granted you an option to purchase 75,000 shares, of which 25,000 shares will be vested as of your Final Day, and (iv) on February 6, 2020, the Company granted you an option to purchase 100,000 shares, of which 4,166 shares will be vested as of your Final Day (the vested shares subject to such options are referred to herein as, the “Vested Options”). The Vested Options, as well as any shares acquired pursuant to the exercise of the Vested Options, will remain subject to the terms and conditions of the applicable stock option agreement, any applicable exercise agreements/notices and the Plan (these equity document are referred to herein as, the “Equity Documents”).

You acknowledge and agree that, other than the Vested Options, you have no right to receive or otherwise acquire any Company securities, including, without limitation, any shares of the Company’s capital stock or any options or other rights to purchase or receive shares of the Company’s capital stock, from the Company or any affiliate of the Company.

5.Your General Release. In consideration for receiving the severance described in Section 3 above, and for other good and valuable consideration, the sufficiency of which you hereby acknowledge, you hereby waive and release to the maximum extent permitted by applicable law any and all claims or causes of action, whether or not now known, against the Company and/or its predecessors, successors, past, present or future parent companies, subsidiaries, affiliated companies, investors (in their capacity as such), branches or related entities (collectively, including the Company, the “Entities”) and/or the Entities’ respective past, present or future insurers, officers, directors, agents, attorneys, employees, consultants, stockholders, assigns and employee benefit plans (each, in their capacity in relation to the Entities as such; collectively with the Entities, the “Released Parties”), with respect to any matter, including, without limitation, any matter related to your employment with the Company or the termination of that employment relationship.

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This waiver and release includes, without limitation, claims under the Employee Retirement Income Security Act (ERISA); claims for attorneys’ fees or costs; any and all claims for stock, stock options, restricted stock units or other equity securities of the Company; penalties claims; wage and hour claims; statutory claims; tort claims; contract claims; claims of wrongful discharge, constructive discharge, emotional distress, defamation, invasion of privacy, fraud, breach of contract, and breach of the covenant of good faith and fair dealing; claims for retaliation; claims related to discrimination or harassment based on any protected basis, under Title VII of the Civil Rights Act, the California Fair Employment and Housing Act, the Americans with Disabilities Act, the federal Age Discrimination in Employment Act (the “ADEA”) or any other federal, state, or local law prohibiting discrimination, harassment or retaliation; and claims under the California Labor Code, the California Business and Professions Code, and all other federal, state and local laws, ordinances and regulations.

You covenant not to sue the Released Parties for any of the claims released above, agree not to participate in any class, collective, representative, or group action that may include any of the claims released above, and will affirmatively opt out of any such class, collective, representative or group action. Further, you agree not to participate in, seek to recover in, or assist in any litigation or investigation by other persons or entities against the Released Parties, except as required by law.

Your release covers only those claims that arose prior to the execution of this Agreement.  Execution of this Agreement does not bar any claim that arises hereafter, including (without limitation) a claim for breach of this Agreement.  Additionally, nothing in this Agreement precludes you from participating in any investigation or proceeding before any federal or state agency or governmental body. However, while you may file a charge and participate in any such proceeding, by signing this Agreement, you waive any right to bring a lawsuit against the Released Parties and waive any right to any individual monetary recovery in any such proceeding or lawsuit. Nothing in this Agreement or the Confidentiality Agreements is intended to impede your ability to report possible securities law violations to the government or to receive a monetary award from a government administered whistleblower-award program (this includes, without limitation, you initiating communications directly with, responding to any inquiry from, or providing information to or testimony before, the Securities and Exchange Commission, Department of Justice, or any other governmental agency or self-regulatory organization). You do not need the prior authorization of the Company to make any such reports or disclosures or to participate or cooperate in any governmental investigation, action or proceeding, and you are not required to notify the Company that you have made such reports and disclosures or have participated or cooperated in any governmental investigation, action or proceeding. Nothing in this Agreement waives your right to testify or prohibits you from testifying in an administrative, legislative, or judicial proceeding concerning alleged criminal conduct or alleged sexual harassment when you have been required or requested to attend the proceeding pursuant to a court order, subpoena or written request from an administrative agency or the California state legislature.

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The waiver and release contained in this Agreement does not apply to (a) your indemnification rights under applicable law, under the Indemnification Agreement entered into by and between you and the Company on July 11, 2014, as amended and restated on May 8, 2019 (the “Indemnification Agreement”), and under the Company’s internal governing documents, or (b) any claim which, as a matter of law, cannot be released by private agreement. If any provision of the waiver and release contained in this Agreement is found to be unenforceable, it shall not affect the enforceability of the remaining provisions and all remaining provisions shall be enforceable to the full extent permitted by law.

6.Waiver of Unknown Claims. You understand and acknowledge that you are releasing potentially unknown claims, and that you may have limited knowledge with respect to some of the claims being released. You acknowledge that there is a risk that, after signing this Agreement, you may learn information that might have affected your decision to enter into this Agreement. You assume this risk and all other risks of any mistake in entering into this Agreement. You agree that this Agreement is fairly and knowingly made.

In addition, you expressly waive and release any and all rights and benefits under Section 1542 of the Civil Code of the State of California (or any analogous law of any other state), which reads as follows: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.”

You understand and agree that claims or facts in addition to or different from those which are now known or believed by you to exist may hereafter be discovered, but it is your intention to release all claims that you have or may have against the Released Parties, whether known or unknown, suspected or unsuspected.

7.ADEA Waiver. You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you may have under the ADEA (“ADEA Waiver”) and that the consideration given for the ADEA Waiver is in addition to anything of value to which you are already entitled. You further acknowledge that: (a) your ADEA Waiver does not apply to any claims that may arise after you sign this Agreement; (b) you should consult with an attorney prior to executing this Agreement; (c) you have at least 21 calendar days within which to consider this Agreement (although you may choose to execute Agreement earlier); (d) you have 7 calendar days following the execution of the Agreement to revoke this Agreement; and (e) the Agreement will not be effective until the eighth day after you sign this Agreement provided that you have not revoked it (the “Effective Date”). You agree that any modifications, material or otherwise, made to this Agreement do not restart or affect in any manner the original 21-day consideration period provided in this paragraph. To revoke the Agreement, you must email to Casey Lynch a written notice of revocation at clynch@cortexyme.com, prior to the end of the 7-day period. You acknowledge that your consent to this Agreement is knowing and voluntary. The severance offer will be automatically withdrawn if you do not sign the Agreement within the 21-day consideration period.

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8.Breach. In the event that you materially breach any of your obligations under this Agreement, the Company will be entitled to recover all severance and other consideration paid or provided under this Agreement and to obtain all other relief provided by law or equity.

9.No Admission. Nothing contained in this Agreement shall constitute or be treated as an admission by the Company of any liability, wrongdoing, or violation of law.

10.Continuing Obligations. At all times in the future, including after your Final Day, you will remain bound by your Confidentiality Agreements, copies of which are attached as Attachment A.

11.Return of Company Property. You agree that, on your Final Day, you will return to the Company any and all Company property in your possession or control, including, without limitation, equipment, documents (in paper and electronic form), security badges, and credit cards, (it is understood that you are retaining and accepting the ongoing financial obligation for your mobile phones), and you will return and delete and/or destroy all Company property that you stored in electronic form or media (including, but not limited to, any Company property stored in a cloud environment or in your personal computer, USB drives or in any other device that will remain in your possession or control after your Final Day).

12.Non-Disparagement. You agree that you will not disparage or encourage or induce others to disparage the Company or any of the Released Parties. The Company agrees that it and its officers and directors will not disparage or encourage or induce others to disparage you. For the purpose of this Agreement, “disparage” includes, without limitation, making comments or statements on social media or the internet, or to any person or entity including, but not limited to, the press and/or media, current or former employees, partners or principals of the Company or any entity with whom the Company or you have a business relationship, that would adversely affect in any manner (a) the conduct of the business of the Company or any of the Released Parties (including, but not limited to, any business plans or prospects), (b) the reputation of the Company or any of the Released Parties, or (c) your personal and professional reputation. Further, notwithstanding anything stated herein, nothing in this Agreement, including, without limitation, this Section 12, or the Confidentiality Agreements shall be construed to prevent you or the Company from disclosing information, or otherwise responding or testifying truthfully, in either case, to the extent required by a lawfully issued subpoena, a duly issued court order or other legal process; provided that you or the Company (as the case may be) provide the other party or parties, as applicable, with advance written notice and a reasonable opportunity to contest such subpoena, court order or other legal process and/or to seek an appropriate protective order to limit the use and disclosure of any such information or testimony.

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13.Cooperation. You agree to fully cooperate with the Company and its counsel as it relates to any issue or matter that may arise as the subject of litigation or administrative inquiry which occurred during your employment with the Company. Full cooperation shall include, but is not limited to, review of documents, attendance at meetings, trial or administrative proceedings, depositions, interviews, or production of documents to the Company without the need of the subpoena process. For your actual time spent in preparation, participation or other requested supporting activities as contemplated by this section, the Company will pay you $350 per hour and will reimburse you at cost for any travel, lodging or other out of pocket expenses that you reasonably incur (which will be consistent with Company policies for business expenses incurred by its executive staff).

14.Transition.  You agree to cooperate in matters relating to the transition of your employment as reasonably requested by the Company.

15.Dispute Resolution. To ensure rapid and economical resolution of any disputes relating to this Agreement, you and the Company agree that any and all claims, disputes or controversies of any nature whatsoever arising out of, or relating to, this Agreement, or its interpretation, enforcement, breach, performance or execution, shall be resolved by final, binding and confidential arbitration before a single arbitrator in San Francisco, California (or another mutually agreeable location) conducted under the Judicial Arbitration and Mediation Services (JAMS) Streamlined Arbitration Rules & Procedures, which can be reviewed at http://www.jamsadr.com/rules-streamlined-arbitration/. Before engaging in arbitration, you and the Company agree to first attempt to resolve the dispute informally or with the assistance of a neutral third-party mediator. You and the Company each acknowledge that by agreeing to this arbitration procedure, you and the Company waive the right to resolve any such dispute, claim or demand through a trial by jury or judge or by administrative proceeding. The arbitrator, and not a court, shall also be authorized to determine whether the provisions of this section apply to a dispute, controversy, or claim except as provided herein. The arbitrator may in his or her discretion award attorneys’ fees to the prevailing party. All claims, disputes, or controversies subject to arbitration as set forth in this section must be submitted to arbitration on an individual basis and not as a representative, class and/or collective action proceeding on behalf of other individuals. Any issue concerning the validity of this representative, class and/or collective action waiver must be decided by a court and if for any reason it is found to be unenforceable, the representative, class and/or collective action claim may only be heard in court and may not be arbitrated. Claims will be governed by applicable statutes of limitations. This arbitration agreement does not cover any action seeking only emergency, temporary or preliminary injunctive relief (including a temporary restraining order) in a court of competent jurisdiction in accordance with applicable law. This arbitration agreement shall be construed and interpreted in accordance with the Federal Arbitration Act.

16.Entire Agreement. You agree that except for the Confidentiality Agreements, the Indemnification Agreement and the Equity Documents, and except as otherwise expressly provided in this Agreement, this Agreement renders null and void any and all prior or contemporaneous negotiations, agreements, understandings, or representations between you and the Company or any affiliate of the Company.  You and the Company agree that this Agreement constitutes the entire agreement between you and the Company and any affiliate of the Company regarding the subject matter of this Agreement and that this Agreement may be modified only in a written document signed by you and a duly authorized officer of the Company.

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17.Governing Law. Except as to the Dispute Resolution provision (Section 15), this Agreement shall be construed and interpreted in accordance with the laws of the State of California.

18.Severability. The provisions of this Agreement are severable. If any provision of this Agreement is held invalid or unenforceable, such provision shall be deemed deleted from this Agreement and such invalidity or unenforceability shall not affect any other provision of this Agreement, the balance of which will remain in and have its intended full force and effect; provided, however that if such invalid or unenforceable provision may be modified so as to be valid and enforceable as a matter of law, such provision shall be deemed to have been modified so as to be valid and enforceable to the maximum extent permitted by law.

19.Counterparts. This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one agreement. Execution via DocuSign or a similar service, or of a facsimile copy or scanned image shall have the same force and effect as execution of an original, and an electronic or facsimile signature or scanned image of a signature shall be deemed an original and valid signature.

To accept this Agreement, please sign, date and return this Agreement to me on or before 5:00 p.m. PT on May 19, 2020. This Agreement will be effective on the Effective Date.

 

 

My agreement with the terms and conditions of this Agreement is signified by my signature below. Furthermore, I acknowledge that I have read and understand this Agreement and that I sign this release of all claims voluntarily, with full appreciation that at no time in the future may I pursue any of the rights I have waived in this Agreement.

 

 

 

 

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Attachment A

Confidential Information and Invention Assignment AgreementS

 

 

 

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Casey C. Lynch, certify that:

 

 

Date: August 14, 2020

 

 

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Christopher Lowe, certify that:

 

 

Date: August 14, 2020

 

 

 

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Cortexyme, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

 

 

 

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Cortexyme, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: